Lake County residents have never had to look up the county tax schedule for Indiana residents or write anything on Line 9 of their state income returns.
Lake County became the final county in the state to join the local option income tax club, passing a 1.5 percent assessment last spring and most employers began withholding it from paychecks last fall. Every county resident and out-of-state residents working in Lake must pay.
Lake officials resisted passing the local option tax for years on grounds it was unfair to working families since businesses are exempt from paying it. County officials preferred to rely on property taxes, which are predominantly paid by businesses, but the state Legislature slashed business-related taxes, so Lake officials were left with little choice but to find new revenues to support local government services.
This new tax consists of three parts:
- A 1 percent County Adjusted Gross Income Tax to provide property tax relief to all classes of taxpayers including homeowners, landlords and all businesses, even though businesses don't have to pay the income tax.
- A 0.25 percent Public Safety Income Tax that will be spent on police, firefighters, emergency medical services, county jail and juvenile detention center expenses as well as a countywide E-911 communications system.
- A 0.25 percent County Economic Development Income Tax that, despite its name, it can be spent "for any lawful purpose" under state law.
"Like the state income tax, Social Security benefits and some pension benefits are exempted," said Robert E. Dittmer, a spokesman for the Indiana Department of Revenue.
Dittmer adds, "Since the county tax rate was in effect for only one quarter of the year, the tax will be figured using a .00375 rate, which is one-quarter of the .015 adopted rate.
Lake officials hope the pain of paying this new income tax may be soothed by a further reduction in property taxes. Also, the impact on an individual's total tax bill will be felt differently depending on where they live.
The county government property tax rate will be reduced for all, but it is only one of dozens of rates property owners pay, depending on their location. Those living in urban areas also pay municipal, school and special taxing unit rates that represent the lion's share of their average tax bills and therefore will see the least property tax relief.
In contrast, rural and small town residents will see the most relief since the county government rate is the largest part of their total taxes.
Tens of thousands of home and business owners in East Chicago, Gary, Hammond and Lake Station may see no property tax reductions at all because they already receive all the property tax relief allowed under state law through the so-called circuit breaker, which caps the taxes imposed on any single parcel per year.
This will result in a significant amount of income tax revenues being diverted from those property owners to local government coffers.
Local officials said they plan to use the new taxes to raise public safety responders' salaries after years of stagnation as well as extend the South Shore commuter train line, and support local bridge, highway and street repairs, sewers and stormwater drainage infrastructure.